He said: "Without doubt one of the biggest challenges ... every security and law enforcement agency around the world is now facing is the very rapid development of communications types and methods and in particular, but not only, encryption.

"(This) is making, broadly, terrorism easier to conduct and safer for terrorists."

Under the draft Communications Bill, internet and communication providers would be forced to retain the activities of their customers for up to a year.

The records would include who and when people were in contact with but not the content of the communications.

Earlier this week, nine cyber-security experts wrote to David Cameron, the Prime Minister, urging him to abandon the plans..

The Coalition is under tension with the Liberal Democrats against the proposals and Nick Clegg, the deputy prime minister has previously threatened to veto the plans.

Mr Farr said: "Legislation and some degree of technology is required to enable us to level the playing field.

“But that legislation clearly is controversial and we can see this being played out in the UK at the moment.

"Cyber-enabled crime and cyber itself will drive every country in this direction. It's in our view a key issue for us."